Lufthansa Says Rising Euro to Hurt Passenger-Unit Revenue

Deutsche Lufthansa AG, Europe’s second-largest airline, said sales at its main passenger arm won’t grow this year because of the impact of a rising euro, and predicted an earnings decline from the cargo business.

Third-quarter revenue was little changed at 8.3 billion euros ($11 billion), while operating profit fell 12 percent to 589 million euros, Lufthansa said in a statement today. Exchange-rate moves cut 380 million euros from revenue in the nine months through September, the company said.

“Exchange-rate effects that reduce our revenue demonstrate to us clearly how important it is to be cost-efficient,” Chief Financial Officer Simone Menne said in a separate statement, adding that the Cologne, Germany-based company will “continue to work to be become even more commercially robust.”

Lufthansa is struggling to lift operating profit toward a goal of 2.3 billion euros by 2015 as currency headwinds and a weakening cargo market eat up cost savings. The euro is the best performer among a basket of 10 developed-market currencies this year, while the Japanese yen is the worst, meaning the airline’s sales from Japan and other countries are lower when translated. The company said Oct. 22 that the 2013 profit figure will be 600 million euros to 700 million euros, short of analyst estimates.

Shares of Lufthansa were trading little changed at 14.72 euros as of 9.11 a.m. in Frankfurt. The stock has gained 3.3 percent this year, trailing a 40 percent gain in the six-member Bloomberg EMEA Airlines Index.

IT Partnership

Operating profit at the German carrier’s cargo business will decline to a “high double-digit million” euro range this year from 105 million euros in 2012, it said.

Chief Executive Officer Christoph Franz, who is leaving for Swiss drugmaker Roche Holding AG next year, said this month that he may need to revisit overhaul efforts.

Lufthansa said Oct. 25 it’s seeking a partnership for a unit operating computer centers that would cut its information technology business almost in half in a bid to reduce costs.

Yields, a measure of revenue-per-seat equating to fares, declined 3.1 percent in the third quarter for the company, while falling 9.8 percent on routes to the Asia-Pacific region. Stripping out currency effects, group yields rose 0.5 percent.

Bigger Planes

Franz has suspended dividend payments while boosting spending to modernize the fleet. He is halfway through a restructuring program that includes the elimination of thousands of jobs and a reorganization of large parts of the domestic network around the low-cost Germanwings subsidiary.

The company’s cargo business is seeing the “first signs of market recovery” for the fourth quarter, Lufthansa said, while its maintenance arm will post higher profit than previously expected. Lufthansa plans to increase capacity in the cargo business by 6 percent in the quarter, and by 5 percent in its passenger airline business next year.

The added capacity next year will mainly come from bigger planes and fewer first class seats offered, as Lufthansa will use more Boeing Co. 747-8 jumbo jets and Airbus SAS A380s, and is revamping cabins for its premium passengers, the company had said. The number of flights operated dropped by 2 percent in the third quarter, while capacity rose 2.6 percent, Lufthansa said.

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